To the Members of Varroc Engineering Limited
Report on the Audit of the Standalone Financial StatementsOpinion
We have audited the standalone financial statements of Varroc Engineering Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2025, the Statement of Profit and Loss, including the Statement of Other Comprehensive Income, the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and notes to the Standalone financial statements, including a summary of material accounting policies and other explanatory information .
In our opinion and to the best of our information and according to the explanations given to us , the aforesaid standalone financial statements give the information required by the Companies Act, 2013, as amended ("the Act") in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2025, its profit including other comprehensive income, its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing (SAs), as specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the 'Auditor's Responsibilities for the Audit of the Standalone Financial Statements' section of our report. We are independent of the Company in accordance with the 'Code of Ethics' issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities
in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.
Emphasis of Matter
We draw attention to Note 51B of the standalone financial statements which describes the effects of the GST Orders received by the Company from GST Authorities. The Company has initiated appellate proceedings against these orders, pending conclusion of which no adjustments have been made in respect of such matters in the standalone financial statements. Our opinion is not modified in respect of these matters.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements for the financial year ended March 31,2025. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the standalone financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the standalone financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying standalone financial statements.
|
Key audit matters
|
How our audit addressed the key audit matter
|
|
Accounting for merger of Varroc Polymers Limited ('VPL') (wholly-owned subsidiary of the Company) with Varroc Engineering Limited (as described in note 55(b) of the standalone financial statements)
|
|
Pursuant to provisions of Section 230-232 of the Companies Act, 2013, the Board of Directors of the Company on May 17, 2024 approved the scheme of amalgamation of VPL with the Company with appointed date of April 01, 2024 ('the Scheme'). National Company Law Tribunal ('NCLT') approved the Scheme vide its order dated January 10, 2025 and the merger became effective on February 01, 2025 on filing of the NCLT order with the Registrar of Companies.
This merger has been accounted for as a business combination of entities under common control as per Appendix C to Ind AS 103 - Business Combinations. Consequently, all the comparative periods presented in the financial statements have been restated to include the effect of this merger.
We identified this as a key audit matter in our audit of the standalone financial statements as the merger is considered a significant event that occurred during the year which required management judgement regarding assessment of common control transaction as per Appendix C to Ind AS 103 and required restatement of comparative periods presented in the financial statements.
|
The audit procedures performed by us included the
following:
• Inspected the documents filed by the Company with the Registrar of Companies including the NCLT order with respect to the merger of VPL with the Company based on which the Scheme became effective.
• Read the accounting treatment in the Scheme as approved by NCLT and assessed whether it is in accordance with Appendix C to Ind AS 103.
• Evaluated whether the accounting treatment applied to the merger is in accordance with the Scheme.
• Assessed the workings prepared by management for the merger including elimination of inter-company transaction and balances and workings prepared for restatement of comparative figures presented in the standalone financial statements as per Appendix C to Ind AS 103.
• Assessed the disclosures in the standalone financial statements for compliance with the relevant accounting standard requirements.
|
|
Recoverability of investment in and loans to VarrocCorp Holding BV, Netherlands (as described in note 7(a) and 16 of the standalone financial statements)
|
|
The Company has equity investment of H 7,771.23 Million (net of impairment provision of H 1,900.79 Million) in and loans of H 1,031.26 Million to its wholly owned subsidiary VarrocCorp Holding BV Netherlands ('VCHBV') as at March 31, 2025.
As required by Ind AS 36 "Impairment of assets", at each reporting period end, management assesses the existence of impairment indicators for investments in and loans to subsidiaries. In case of existence of impairment indicators, the investment and loan balances are subjected to impairment test.
VCHBV holds equity investments in overseas subsidiaries -primarily in Italy, Vietnam, Romania and in China JV. Hence for impairment testing, the management has assessed the recoverability of the aforesaid underlying investments in overseas subsidiaries as at March 31, 2025.
The recoverable amount of investment in and loans to each of these overseas subsidiaries is determined based on the discounted cash flow model which has sensitivity around key assumptions such as revenue growth, operating margins, discount rate, terminal growth rate and also involves significant judgements and estimates.
We identified this as a key audit matter in our audit of the standalone financial statements considering the complexity in determining the recoverable amounts and the quantum of such equity investments and loans as at March 31, 2025.
|
The audit procedures performed by us included the
following:
• Obtained an understanding, evaluated the design and tested the operating effectiveness of controls the Company has in relation to impairment assessment process;
• Evaluated the competence and objectivity of Company's external specialist involved in the process;
• Involved valuation specialist where necessary to assist in assessing the appropriateness of the valuation model including the independent assessment of the underlying key assumptions;
• Performed sensitivity testing of key assumptions used;
• Tested the arithmetical accuracy of the models;
• Assessed the adequacy of disclosures in the standalone financial statements.
|
|
Key audit matters
|
How our audit addressed the key audit matter
|
|
Allowability of deduction on write-off of loans to subsidiary under the Income Tax Act, 1961 (as described in note 24 of the standalone financial statements)
|
|
In the previous year ended March 31, 2024, the Company derecognised (written-off) loans given to VCHBV and interest accrued on such loans aggregating to H 13,533.33 million (including H 1,736.89 million by VPL, wholly owned subsidiary, now merged with the Company with the appointed date of April 01, 2024)
These loans pertained to funding of Varroc Lighting Systems ('VLS') entities (erstwhile subsidiaries of VCHBV) and were fully provided for during the period ended Sep 30, 2022 when the VLS business was sold to Compagnie Plastic Omnium.
Management considered the aforesaid write-off as an allowable business loss for computation of income tax provision for AY 2024-25 (and also recognition of deferred tax asset on unutilized loss), as it believes that these loans extended to VCHBV were in the nature of trade investments to advance the Company's business.
We identified this as a key audit matter in our audit of the standalone financial statements considering quantum of the deduction and the significant judgement involved with respect to deductibility of such expenditure under Income tax Act, 1961.
|
The audit procedures performed by us included the
following:
• Read the tax opinions obtained by the Company from two senior tax counsels supporting the allowability of tax deduction on write-off of the said loans;
• Involved tax experts to assist in evaluating the allowability of deduction on write-off of loans to subsidiary;
• Assessed the forecast of future taxable income prepared by the management to test the recoverability of deferred tax asset as at March 31, 2025;
• Assessed the adequacy of disclosures in the standalone financial statements.
|
|
Derecognition of trade receivables under factoring arrangements (as described in note 13 of the standalone financial statements)
|
|
The Company enters into non-recourse factoring arrangements for its trade receivables with various banks/financial institutions.
As at March 31, 2025, the Company derecognised trade receivables amounting to H 6,993.36 million. The Company derecognizes the receivables from its books if it transfers substantially all the risks and rewards of ownership of the financial asset (i.e. receivables).
The assessment of derecognition of trade receivables under the factoring arrangements is complex and requires judgement.
Accordingly, this has been identified as a key audit matter in our audit of the standalone financial statements.
|
The audit procedures performed by us included the
following:
• Evaluated the assessment made by management in respect of transfer of substantially all risks and rewards of ownership of the financial assets under the factoring contracts;
• Read samples of factoring contracts to understand the terms and assessed if they qualify as non-recourse agreements and further assessed the accounting treatment as per the requirements of Ind AS 109, "Financial Instruments";
• Assessed the adequacy of disclosures in the standalone financial statements for compliance with the relevant accounting standard requirements.
|
Other Information
The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Annual report, but does not include the standalone financial statements and our auditor's report thereon. The Annual report is expected to be made available to us after the date of this auditor's report.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether such other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. When we read the Annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of the Management for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Board of Directors is also responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements for the financial year ended March 31, 2025 and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the "Annexure 1" a statement on the matters specified in paragraphs 3 and 4 of the Order.
2. As required by Section 143 (3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in the paragraph (j)(vi) below on reporting under Rule 11(g);
(c) The Balance Sheet, the Statement of Profit and Loss including the Statement of Other Comprehensive Income, the Cash Flow Statement and Statement of Changes in Equity dealt with by this Report are in agreement with the books of account;
(d) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended;
(e) The matter described in Emphasis of Matter paragraph above, in our opinion, may have an adverse effect on the functioning of the Company;
(f) On the basis of the written representations received from the directors as on March 31, 2025 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2025 from being appointed as a director in terms of Section 164 (2) of the Act;
(g) The modification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph (b) above on reporting under Section 143(3) (b) and paragraph (j)(vi) below on reporting under Rule 11(g)
(h) With respect to the adequacy of the internal financial controls with reference to standalone financial statements and the operating effectiveness of such controls, refer to our separate Report in "Annexure 2" to this report;
(i) In our opinion, the managerial remuneration for the year ended March 31, 2025 has been paid / provided by the Company to its directors in
accordance with the provisions of section 197 read with Schedule V to the Act.
(j) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements
- Refer Note 51 to the standalone financial statements;
ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts
- Refer Note 7 and 16 to the standalone financial statements;
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company;
iv. a) The management has represented
that, to the best of its knowledge and belief, other than as disclosed in the note 54 to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
b) The management has represented that, to the best of its knowledge and belief, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
c) Based on such audit procedures performed that have been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (a) and (b) contain any material misstatement.
v. As stated in note 20A to the standalone financial statements, the Board of Directors of the Company have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with section 123 of the Act to the extent it applies to declaration of dividend.
vi. Based on our examination which included test checks, the Company has used SAP accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility in respect of the application and the same has operated throughout the year for all relevant transactions. We did not come across any instance of the audit trail feature being tampered with in respect of this accounting software. Normal/Regular users are not granted direct database or super user level access. However, changes to the database by a super user specifically does not carry
the feature of a concurrent real time audit trail. Additionally, the audit trail of prior year has been preserved by the Company as per the statutory requirements for record retention to the extent it was enabled and recorded in the respective year.
Further, the Company has also used a payroll processing software which is operated by a third-party service provider. In the absence of necessary evidence regarding audit trail in the Service Organisation Controls report received by us, we are unable to comment whether the audit trail feature was enabled and operated throughout the year for all relevant transactions recorded in the payroll processing software or whether there were any instances of the audit trail feature being tampered with. Additionally, we are unable to comment whether the audit trail has been preserved by the Company as per the statutory requirements for record retention.
For S R B C & CO LLP
Chartered Accountants ICAI Firm Registration Number: 324982E/E300003
per Paul Alvares
Partner
Membership Number: 105754 UDIN: 25105754BMITLI3154
Place : Pune Date: May 29, 2025
|